Post Session: Quick Review

Indian equity benchmarks managed to make a comeback on Dalal Street with gains of around more than one and half percent after yesterday’s fall. The action on Dalal Street was broad-based, as both S&P BSE Midcap and Smallcap indices rose more than one percent. Emergence of buying interest among investors and funds, brokers coupled with a firm trend in other regional markets following an unexpected fall in a US manufacturing index boosted sentiment in domestic market. The sudden spike in the market can also be attributed due to short covering as sellers might have got trapped as Nifty reclaimed its crucial level of 8,600. The benchmarks made a gap-up opening in early deals with private report stating that India’s current account deficit is likely to stay below 1% of GDP this year, largely due to a sharp fall in the trade deficit as against last year. As per the report, the widening of the trade deficit will be watched closely, especially at a time when the services sector receipts and private transfers are under pressure. Indian rupee opened higher against the US dollar on account of selling of American currency by banks and exporters. The weakness in the dollar against other currencies overseas is on unexpected fall in a US manufacturing index which made the rupee stronger. Some support also came after NITI Aayog Vice-Chairman Arvind Panagariya called for building ecosystems to take India on a high-growth trajectory to create wealth and eliminate poverty. Panagariya stated that the liberalization and foreign investment as the few key policies changed the growth dynamics of Indian economy.  Investors are keeping an eye on the crucial three-day meeting of the all-powerful GST Council, starting today, which will decide on the tax rate and sort out issues like compensation formula for rollout of the new indirect tax regime from April 1, 2017. The Reuters poll stated that RBI is expected to cut interest rates again early next year with an aim to boost already-solid growth a little bit more. A further rate cut would help the Indian government in its efforts to boost economic growth to above 8%.

On the global front, Asian markets ended in green, ahead of major data from China this week that could confirm some signs of a stronger than expected third quarter in the world’s second largest economy. Investors also noted comments overnight from Fed Vice Chair Stanley Fischer saying that the central bank is very close to job and price targets that should trigger a rate hike. Europe’s main stock markets ratcheted higher with British and US inflation figures the main data set to drive trading. Euro zone banks are set to tighten access to corporate credit for the first time in 2-1/2 years as they become more wary of risk and negative interest rates eat into their profit.

Back home, buying traction was witnessed in banking stocks after global rating agency, Moody’s in its latest report titled ‘Banks - India: Draft Bill on Resolution Will Enhance Systemic Stability’ said that the draft bill on the resolution of financial firms in India is credit positive for Indian banks because it is an important step to having a comprehensive framework in place for the resolution of financial firms. The agency, however, observed that this draft Bill will have to go through multiple steps before becoming law and hence, may be subject to changes and delays.

The BSE Sensex ended at 28025.00, up by 495.03 points or 1.80% after trading in a range of 27652.76 and 28064.39. There were 28 stocks advancing against 2 stocks declining on the index. (Provisional)

The broader indices ended in green; the BSE Mid cap index was up by 1.85%, while Small cap index was up by 1.23%.  (Provisional)

The top gaining sectoral indices on the BSE were Bankex up by 2.33%, Capital Goods up by 1.92%, Metal up by 1.83%, IT up by 1.79% and TECK up by 1.62%.  (Provisional)

The top gainers on the Sensex were Adani Ports & Special Economic Zone up by 6.58%, ICICI Bank up by 4.12%, HDFC up by 3.81%, Tata Steel up by 3.62% and Lupin up by 2.65%.  (Provisional)

On the flip side, ONGC down by 0.70% and Asian Paints down by 0.39% were the top losers. (Provisional)

Meanwhile, global rating agency, Moody's in its latest report titled 'Banks - India: Draft Bill on Resolution Will Enhance Systemic Stability' said that the draft bill on the resolution of financial firms in India is a credit positive for Indian banks because it is an important step to having a comprehensive framework in place for the resolution of financial firms. The agency, however, observed that this draft Bill will have to go through multiple steps before becoming law, and hence, may be subject to changes and delays. Currently, the resolution of financial firms in India is based on minor parts of legislation enacted for other purposes.

Moody's Investors Service report further said that based on the draft bill, bail-ins do not seem to be the preferred form of resolution, with significant restrictions in place for their usage. These restrictions include contractual bail-in clauses for instruments that may be bailed in and requirements that bail-ins should be used only after attempts at recovery have been made.

The rating agency said that the bill ranks depositors above senior unsecured creditors in a liquidation scenario. In contrast, under existing laws, senior unsecured creditors rank pari passu with uninsured depositors. This change is therefore a credit negative for senior unsecured creditors. Such a depositor preference is enshrined into law in other jurisdictions like Singapore, Malaysia and Indonesia.  In those systems, senior debt ratings are on par with deposit ratings, except where they are impacted by different country ceilings. It also expects a similar outcome for Indian banks.

The report said that under the draft bill, public sector banks will be brought under the ambit of the resolution framework. By contrast, according to existing laws, public sector bank resolution can only happen under the direction of the government. Moody's does not expect this change to have an impact on Moody's assumption of the level of systemic support for public sector banks, because the banks' core public sector character would remain unchanged.

It added that the draft bill also provides for a significant delineation of regulatory powers between the Reserve Bank of India and the proposed Resolution Corporation. This situation will be particularly apparent with respect to some key supervisory powers over banks, including criteria for classifying banks into the various risk categories. Such a scenario would represent a change compared to the current structure, where the powers rest almost fully within India's central bank. Consequently, there could be some execution risk, as the system transitions to the new arrangement.

The CNX Nifty ended at 8667.70, up by 147.30 points or 1.73% after trading in a range of 8555.90 and 8685.10. There were 46 stocks advancing against 5 stocks declining on the index. (Provisional)

The top gainers on Nifty were Adani Ports & Special Economic Zone up by 6.90%, ICICI Bank up by 4.04%, HDFC up by 3.78%, Tech Mahindra up by 3.76% and Tata Steel up by 3.70%.  (Provisional)

On the flip side, Bharti Infratel down by 1.50%, ONGC down by 0.63%, Asian Paints down by 0.62%, BPCL down by 0.52% and Ultratech Cement down by 0.17% were the top losers. (Provisional)

The European markets were trading in green; UK’s FTSE 100 increased 74.64 points or 1.07% to 7,022.19, Germany’s DAX increased 127.74 points or 1.22% to 10,631.31 and France’s CAC increased 55.87 points or 1.26% to 4,506.10.

Asian stocks ended in green on Tuesday as oil prices inched higher and after mixed US economic data helped ease worries about a possible rate hike by the Federal Reserve in November. Financials and commodity-related stocks paced the gainers, even as underlying sentiment remained somewhat cautious ahead of a slew of Chinese data due on Wednesday and the European Central Bank meeting on Thursday. Japanese shares ended modestly higher ahead of the earnings season starting later this week. Chinese stocks ended higher as Shanghai's US dollar-denominated B shares stabilized following the previous day's sell-off.